##### 



EXHIBIT 13
 ANNUAL REPORT TO STOCKHOLDERS




---



##### 



Message from the chairman of the Board
       
 
 1




---



##### 



Tri-County Financial Corporation
   TOTAL RETURN PERFORMANCE
 
 Period EndingIndex
    
    
    12/31/01
    
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06Tri-County Financial Corporation
    
    
    
    100.00
    
    
    
    
    169.70
    
    
    
    
    185.33
    
    
    
    
    302.59
    
    
    
    
    343.72
    
    
    
    
    376.92NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    68.76
    
    
    
    
    103.67
    
    
    
    
    113.16
    
    
    
    
    115.57
    
    
    
    
    127.58SNL Mid-Atlantic Bank Index
    
    
    
    100.00
    
    
    
    
    76.91
    
    
    
    
    109.35
    
    
    
    
    115.82
    
    
    
    
    117.87
    
    
    
    
    141.46
 2




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##### 



Management  s Discussion and Analysis
     MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
       3




---



##### 



Tri - County Financial Corporation
        4




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##### 



Management  s Discussion and Analysis
  General.
  Net Interest Income.
    5




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##### 



Tri - County Financial Corporation
   2006
    
    
    2005
    
    
    2004Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/dollars in thousands
    
    Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    CostAssetsInterest-earning assetsLoan portfolio1
    
    $
    398,381
    
    
    $
    29,292
    
    
    
    7.35
    %
    
    $
    332,348
    
    
    $
    22,358
    
    
    
    6.73
    %
    
    $
    254,605
    
    
    $
    16,033
    
    
    
    6.30
    %Investment securities, federal funds
sold and interest-bearing deposits
    
    
    135,824
    
    
    
    6,394
    
    
    
    4.71
    %
    
    
    178,095
    
    
    
    6,797
    
    
    
    3.82
    %
    
    
    147,274
    
    
    
    5,580
    
    
    
    3.79
    %Total interest-earning assets
    
    
    534,205
    
    
    
    35,686
    
    
    
    6.68
    %
    
    
    510,443
    
    
    
    29,155
    
    
    
    5.71
    %
    
    
    401,879
    
    
    
    21,613
    
    
    
    5.38
    %Cash and cash equivalents
    
    
    4,072
    
    
    
    
    
    
    
    
    
    
    
    5,437
    
    
    
    
    
    
    
    
    
    
    
    2,937Other assets
    
    
    20,133
    
    
    
    
    
    
    
    
    
    
    
    19,262
    
    
    
    
    
    
    
    
    
    
    
    17,807Total Assets
    
    $
    558,410
    
    
    
    
    
    
    
    
    
    
    $
    535,142
    
    
    
    
    
    
    
    
    
    
    $
    422,623Liabilities and Stockholders EquityInterest-bearing liabilitiesSavings
    
    
    34,570
    
    
    
    409
    
    
    
    1.18
    %
    
    
    36,696
    
    
    
    216
    
    
    
    0.59
    %
    
    
    37,776
    
    
    
    176
    
    
    
    0.47
    %Interest-bearing
demand and money market accounts
    
    
    104,410
    
    
    
    3,053
    
    
    
    2.92
    %
    
    
    89,394
    
    
    
    1,387
    
    
    
    1.55
    %
    
    
    85,212
    
    
    
    755
    
    
    
    0.89
    %Certificates of deposit
    
    
    204,675
    
    
    
    8,609
    
    
    
    4.21
    %
    
    
    146,512
    
    
    
    4,869
    
    
    
    3.32
    %
    
    
    93,267
    
    
    
    2,298
    
    
    
    2.46
    %Long-term debt
    
    
    101,520
    
    
    
    4,491
    
    
    
    4.42
    %
    
    
    93,409
    
    
    
    3,966
    
    
    
    4.25
    %
    
    
    73,830
    
    
    
    3,280
    
    
    
    4.44
    %Short-term debt
    
    
    18,129
    
    
    
    905
    
    
    
    4.99
    %
    
    
    82,665
    
    
    
    2,565
    
    
    
    3.10
    %
    
    
    64,736
    
    
    
    1,164
    
    
    
    1.80
    %Guaranteed preferred beneficial interest
in junior subordinated debentures
    
    
    12,000
    
    
    
    892
    
    
    
    7.43
    %
    
    
    9,916
    
    
    
    581
    
    
    
    5.86
    %
    
    
    3,255
    
    
    
    140
    
    
    
    4.31
    %Total Interest-Bearing Liabilities
    
    
    475,304
    
    
    
    18,359
    
    
    
    3.86
    %
    
    
    458,592
    
    
    
    13,584
    
    
    
    2.96
    %
    
    
    358,076
    
    
    
    7,813
    
    
    
    2.18
    %Noninterest-bearing demand deposits
    
    
    42,030
    
    
    
    
    
    
    
    
    
    
    
    39,855
    
    
    
    
    
    
    
    
    
    
    
    32,909Other liabilities
    
    
    4,444
    
    
    
    
    
    
    
    
    
    
    
    4,474
    
    
    
    
    
    
    
    
    
    
    
    3,178Stockholders equity
    
    
    36,632
    
    
    
    
    
    
    
    
    
    
    
    32,221
    
    
    
    
    
    
    
    
    
    
    
    28,460Total Liabilities and Stockholders Equity
    
    $
    558,410
    
    
    
    
    
    
    
    
    
    
    $
    535,142
    
    
    
    
    
    
    
    
    
    
    $
    422,623Net interest income
    
    
    
    
    
    $
    17,327
    
    
    
    
    
    
    
    
    
    
    $
    15,571
    
    
    
    
    
    
    
    
    
    
    $
    13,800Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    2.75
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    3.43
    %Ratio of average interest-earning assets
to average interest bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.39
    %
    
    
    
    
    
    
    
    
    
    
    111.31
    %
    
    
    
    
    
    
    
    
    
    
    112.23
    %
 
 1
    
    Average balance includes non-accrual loans. 6




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##### 



Management  s Discussion and Analysis
  Year ended December 31, 2006
    
    
    Year ended December 31, 2005compared to December 31, 2005
    
    
    compared to December 31, 2004dollars in thousands
    
    Volume
    
    
    Due to Rate
    
    
    Total
    
    
    Volume
    
    
    Due to Rate
    
    
    TotalInterest IncomeLoan portfolio
    
    $
    4,855
    
    
    $
    2,079
    
    
    $
    6,934
    
    
    $
    5,231
    
    
    $
    1,094
    
    
    $
    6,325Investment securities,
federal funds sold and
interest-bearing deposits
    
    
    (1,989
    )
    
    
    1,586
    
    
    
    (403
    )
    
    
    1,176
    
    
    
    41
    
    
    
    1,217Total Interest-Earning Assets
    
    
    2,866
    
    
    
    3,665
    
    
    
    6,531
    
    
    
    6,407
    
    
    
    1,135
    
    
    
    7,542Interest-Bearing LiabilitiesSavings
    
    
    (25
    )
    
    
    219
    
    
    
    193
    
    
    
    (7
    )
    
    
    47
    
    
    
    40Interest-bearing demand and
money market accounts
    
    
    439
    
    
    
    1,227
    
    
    
    1,666
    
    
    
    65
    
    
    
    567
    
    
    
    632Certificates of deposit
    
    
    2,446
    
    
    
    1,293
    
    
    
    3,740
    
    
    
    1,770
    
    
    
    801
    
    
    
    2,571Long-term debt
    
    
    359
    
    
    
    166
    
    
    
    525
    
    
    
    831
    
    
    
    (145
    )
    
    
    686Short-term debt
    
    
    (3,222
    )
    
    
    1,562
    
    
    
    (1,660
    )
    
    
    556
    
    
    
    845
    
    
    
    1,401Guaranteed preferred
beneficial interest in junior
subordinated debentures
    
    
    155
    
    
    
    156
    
    
    
    311
    
    
    
    391
    
    
    
    50
    
    
    
    441Total Interest-Bearing Liabilities
    
    
    152
    
    
    
    4,623
    
    
    
    4,775
    
    
    
    3,606
    
    
    
    2,165
    
    
    
    5,771Net Change in Net Interest Income
    
    $
    2,714
    
    
    $
    (958
    )
    
    $
    1,756
    
    
    $
    2,801
    
    
    $
    (1,030
    )
    
    $
    1,771
 Provision
for Loan Losses.
 Noninterest
Income.
 Years Ended December 31,
    
    
    % change
    
    
    % change2006
    
    
    2005
    
    
    2004
    
    
    2006 vs. 2005
    
    
    2005 vs. 2004Loan appraisal, credit, and miscellaneous charges
    
    $
    362,145
    
    
    $
    178,424
    
    
    $
    229,125
    
    
    
    102.97
    %
    
    
    (22.13
    %)Net gain on sale of loans held for sale
    
    
    
    
    
    
    
    
    
    
    21,404
    
    
    na
    
    
    
    (100.00
    %)Income from bank owned life insurance
    
    
    328,586
    
    
    
    251,220
    
    
    
    261,411
    
    
    
    30.80
    %
    
    
    (3.90
    %)Service charges
    
    
    1,359,409
    
    
    
    1,186,184
    
    
    
    1,189,001
    
    
    
    14.60
    %
    
    
    (0.24
    %)Gain on sale of asset
    
    
    
    
    
    
    39,756
    
    
    
    8,250
    
    
    
    (100.00
    %)
    
    
    381.89
    %Gain (loss) on the sale of investment securities
    
    
    197,001
    
    
    
    (14,581
    )
    
    
    (61,875
    )
    
    
    1451.08
    %
    
    
    (76.43
    %)Recognition of other than temporary decline in
value of marketable securities
    
    
    
    
    
    
    
    
    
    
    (65,000
    )
    
    na
    
    
    
    (100.00
    %)Total noninterest income
    
    $
    2,247,141
    
    
    $
    1,641,003
    
    
    $
    1,582,316
    
    
    
    36.94
    %
    
    
    3.71
    %
 7




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##### 



Tri - County Financial Corporation
  Noninterest
Expenses.
 Years Ended December 31,
    
    
    % change
    
    
    % change2006
    
    
    2005
    
    
    2004
    
    
    2006 vs. 2005
    
    
    2005 vs. 2004Salary and employee benefits
    
    $
    7,006,369
    
    
    $
    5,849,226
    
    
    $
    5,432,898
    
    
    
    19.78
    %
    
    
    7.66
    %Occupancy expense
    
    
    1,316,261
    
    
    
    1,156,775
    
    
    
    858,891
    
    
    
    13.79
    %
    
    
    34.68
    %Advertising
    
    
    474,554
    
    
    
    411,811
    
    
    
    539,715
    
    
    
    15.24
    %
    
    
    (23.70
    %)Data processing expense
    
    
    821,392
    
    
    
    665,981
    
    
    
    550,781
    
    
    
    23.34
    %
    
    
    20.92
    %Depreciation of furniture, fixtures, and equipment
    
    
    513,348
    
    
    
    452,037
    
    
    
    372,237
    
    
    
    13.56
    %
    
    
    21.44
    %Telephone communications
    
    
    93,319
    
    
    
    85,436
    
    
    
    103,421
    
    
    
    9.23
    %
    
    
    (17.39
    %)Valuation allowance on foreclosed real estate
    
    
    
    
    
    
    
    
    
    
    114,606
    
    
    na
    
    
    
    (100.00
    %)ATM expenses
    
    
    274,403
    
    
    
    277,566
    
    
    
    345,454
    
    
    
    (1.14
    %)
    
    
    (19.65
    %)Office supplies
    
    
    141,144
    
    
    
    138,407
    
    
    
    151,862
    
    
    
    1.98
    %
    
    
    (8.86
    %)Professional fees
    
    
    655,503
    
    
    
    629,126
    
    
    
    261,458
    
    
    
    4.19
    %
    
    
    140.62
    %Office equipment expenses
    
    
    49,816
    
    
    
    50,318
    
    
    
    90,520
    
    
    
    (1.00
    %)
    
    
    (44.41
    %)Other
    
    
    1,216,359
    
    
    
    1,134,647
    
    
    
    946,576
    
    
    
    7.20
    %
    
    
    19.87
    %$
    12,562,468
    
    
    $
    10,851,330
    
    
    $
    9,768,419
    
    
    
    15.77
    %
    
    
    11.09
    %
  8




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##### 



Management  s Discussion and Analysis
 Income
Tax Expense.
  December 31,
    
    
    % change2006
    
    
    2005
    
    
    2006 vs. 2005AssetsCash and due from banks
    
    $
    3,157,595
    
    
    $
    7,262,547
    
    
    
    (56.52
    %)Fed Funds sold
    
    
    772,351
    
    
    
    640,818
    
    
    
    20.53
    %Interest-bearing deposits with banks
    
    
    14,260,560
    
    
    
    14,671,875
    
    
    
    (2.80
    %)Securities available for sale
    
    
    9,301,676
    
    
    
    7,178,894
    
    
    
    29.57
    %Securities held to maturity
    
    
    97,804,849
    
    
    
    116,486,685
    
    
    
    (16.04
    %)Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    6,100,400
    
    
    
    7,190,300
    
    
    
    (15.16
    %)Loans receivable, net
    
    
    422,479,799
    
    
    
    369,592,253
    
    
    
    14.31
    %Premises and equipment, net
    
    
    6,822,461
    
    
    
    6,460,545
    
    
    
    5.60
    %Foreclosed real estate
    
    
    460,884
    
    
    
    475,561
    
    
    
    (3.09
    %)Accrued interest receivable
    
    
    2,837,413
    
    
    
    2,406,542
    
    
    
    17.90
    %Investment in bank owned life insurance
    
    
    8,762,761
    
    
    
    6,434,175
    
    
    
    36.19
    %Other assets
    
    
    2,735,265
    
    
    
    2,487,280
    
    
    
    9.97
    %Total Assets
    
    $
    575,496,014
    
    
    $
    541,287,475
    
    
    
    6.32
    %LiabilitiesDepositsNoninterest-bearing
    
    $
    43,723,436
    
    
    $
    44,325,083
    
    
    
    (1.36
    %)Interest-bearing
    
    
    374,289,966
    
    
    
    319,048,657
    
    
    
    17.31
    %Total deposits
    
    
    418,013,402
    
    
    
    363,373,740
    
    
    
    15.04
    %Short-term borrowings
    
    
    6,567,702
    
    
    
    20,074,975
    
    
    
    (67.28
    %)Long-term debt
    
    
    96,045,936
    
    
    
    107,823,759
    
    
    
    (10.92
    %)Guaranteed preferred beneficial interest in junior subordinated debentures
    
    
    12,000,000
    
    
    
    12,000,000
    
    
    
    Accrued expenses and other liabilities
    
    
    5,139,637
    
    
    
    3,436,845
    
    
    
    49.55
    %Total Liabilities
    
    
    537,766,677
    
    
    
    506,709,319
    
    
    
    6.13
    %Stockholders equityCommon stock
    
    
    26,423
    
    
    
    17,610
    
    
    
    50.05
    %Additional paid in capital
    
    
    9,499,946
    
    
    
    9,057,805
    
    
    
    4.88
    %Retained earnings
    
    
    28,353,792
    
    
    
    25,580,634
    
    
    
    10.84
    %Accumulated other comprehensive (loss) income
    
    
    (53,822
    )
    
    
    49,362
    
    
    
    (209.04
    %)Unearned ESOP shares
    
    
    (97,002
    )
    
    
    (127,255
    )
    
    
    (23.77
    %)Total Stockholders Equity
    
    
    37,729,337
    
    
    
    34,578,156
    
    
    
    9.11
    %Total Liabilities and Stockholders Equity
    
    $
    575,496,014
    
    
    $
    541,287,475
    
    
    
    6.32
    %
 9




---



##### 



Tri - County Financial Corporation
       10




---



##### 



Management  s Discussion and Analysis
 Projected Percentage change in Net Interest Income at December 31, 2006
 +200
    
    
    
    +100
    
    
    
    
    
    
    -100
    
    
    -200Basis points

    
    
    Basis points
    
    
    No Change
    
    
    Basis points
    
    
    Basis points-2.27
    %
    
    
    -0.89
    %
    
    
    0.00
    %
    
    
    -2.05
    %
    
    
    -7.36
    %
         11




---



##### 



Tri - County Financial Corporation
        Less Than 1
    
    
    
    
    
    
    
    
    
    
    More Than 5Total
    
    
    Year
    
    
    1 to 3 Years
    
    
    3 to 5 Years
    
    
    YearsLong-term debt obligations
    
    $
    96,046
    
    
    $
    5,000
    
    
    $
    30,000
    
    
    $
    25,000
    
    
    $
    36,046Short-term debt obligations
    
    
    6,567
    
    
    
    6,567
    
    
    
    
    
    
    
    
    
    
    
    Deposits
    
    
    418,014
    
    
    
    382,194
    
    
    
    34,120
    
    
    
    1,701
    
    
    
    Data processing servicing contracts
    
    
    999
    
    
    
    481
    
    
    
    518
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    5,715
    
    
    
    342
    
    
    
    831
    
    
    
    615
    
    
    
    3,927Commitments to purchase or replace branches
    
    
    4,400
    
    
    
    4,400
    
    
    
    
    
    
    
    
    
    
    
    $
    531,741
    
    
    $
    398,984
    
    
    $
    65,469
    
    
    $
    27,315
    
    
    $
    39,973
   12




---



##### 



Management  s Discussion and Analysis
  Year Ended December 31,dollars in thousands except per share data
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Operations DataNet interest income
    
    $
    17,327
    
    
    $
    15,571
    
    
    $
    13,800
    
    
    $
    10,469
    
    
    $
    10,745Provision for loan losses
    
    
    406
    
    
    
    329
    
    
    
    453
    
    
    
    317
    
    
    
    160Noninterest income
    
    
    2,247
    
    
    
    1,641
    
    
    
    1,582
    
    
    
    1,755
    
    
    
    1,847Noninterest expense
    
    
    12,562
    
    
    
    10,851
    
    
    
    9,768
    
    
    
    8,428
    
    
    
    9,398Net income
    
    $
    4,441
    
    
    $
    3,979
    
    
    $
    3,720
    
    
    $
    2,446
    
    
    $
    1,968Share DataBasic net income per common share
    
    $
    1.68
    
    
    $
    1.53
    
    
    $
    1.44
    
    
    $
    0.96
    
    
    $
    0.77Diluted net income per common share
    
    $
    1.58
    
    
    $
    1.44
    
    
    $
    1.38
    
    
    $
    0.91
    
    
    $
    0.73Cash dividends paid per common share
    
    $
    0.37
    
    
    $
    0.35
    
    
    $
    0.21
    
    
    $
    0.16
    
    
    $
    0.15Weighted average common shares outstandingBasic
    
    
    2,637,531
    
    
    
    2,597,806
    
    
    
    2,579,264
    
    
    
    2,544,899
    
    
    
    2,569,782Diluted
    
    
    2,815,985
    
    
    
    2,763,616
    
    
    
    2,697,030
    
    
    
    2,686,571
    
    
    
    2,713,913Financial Condition DataTotal assets
    
    $
    575,496
    
    
    $
    541,287
    
    
    $
    505,767
    
    
    $
    351,730
    
    
    $
    282,128Loans receivable, net
    
    
    422,480
    
    
    
    369,592
    
    
    
    289,325
    
    
    
    217,740
    
    
    
    197,449Total deposits
    
    
    418,013
    
    
    
    363,374
    
    
    
    266,755
    
    
    
    227,555
    
    
    
    203,025Long and short term debt
    
    
    102,614
    
    
    
    127,899
    
    
    
    198,235
    
    
    
    94,242
    
    
    
    48,922Total stockholders equity
    
    $
    37,729
    
    
    $
    34,578
    
    
    $
    31,124
    
    
    $
    27,912
    
    
    $
    26,873Performance RatiosReturn on average assets
    
    
    0.80
    %
    
    
    0.74
    %
    
    
    0.87
    %
    
    
    0.78
    %
    
    
    0.72
    %Return on average equity
    
    
    12.12
    %
    
    
    12.11
    %
    
    
    12.89
    %
    
    
    8.99
    %
    
    
    7.50
    %Net interest margin
    
    
    3.24
    %
    
    
    3.05
    %
    
    
    3.43
    %
    
    
    3.55
    %
    
    
    4.20
    %Efficiency ratio
    
    
    64.18
    %
    
    
    63.04
    %
    
    
    63.50
    %
    
    
    68.95
    %
    
    
    74.73
    %Dividend payout ratio
    
    
    21.91
    %
    
    
    23.39
    %
    
    
    14.56
    %
    
    
    17.27
    %
    
    
    20.04
    %Capital RatiosAverage equity to average assets
    
    
    8.74
    %
    
    
    8.55
    %
    
    
    9.29
    %
    
    
    8.04
    %
    
    
    9.53
    %Leverage ratio
    
    
    8.74
    %
    
    
    8.55
    %
    
    
    9.29
    %
    
    
    8.04
    %
    
    
    9.53
    %Total risk-based capital ratio
    
    
    11.98
    %
    
    
    11.84
    %
    
    
    11.89
    %
    
    
    12.20
    %
    
    
    13.77
    %Asset Quality RatiosAllowance for loan losses to total loans
    
    
    0.89
    %
    
    
    0.91
    %
    
    
    1.04
    %
    
    
    1.16
    %
    
    
    1.15
    %Nonperforming loans to total loans
    
    
    0.25
    %
    
    
    0.16
    %
    
    
    0.23
    %
    
    
    0.17
    %
    
    
    0.30
    %Allowance for loan losses to nonperforming loans
    
    
    361.59
    %
    
    
    572.96
    %
    
    
    452.97
    %
    
    
    678.30
    %
    
    
    387.60
    %Net charge-offs to average loans
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    -0.01
    %
    
    
    0.03
    %
    
    
    0.06
    %
  13




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##### 



Tri-County Financial Corporation
  Market Information.
 High
    
    Low2005Fourth Quarter
    
    $
    22.29
    
    
    $
    20.09Third Quarter
    
    $
    22.22
    
    
    $
    19.11Second Quarter
    
    $
    19.11
    
    
    $
    18.22First Quarter
    
    $
    18.67
    
    
    $
    17.37
 High
    
    Low2006Fourth Quarter
    
    $
    26.67
    
    
    $
    23.43Third Quarter
    
    $
    24.33
    
    
    $
    23.67Second Quarter
    
    $
    25.67
    
    
    $
    22.88First Quarter
    
    $
    22.67
    
    
    $
    21.53
 Holders.
 Dividends.
    14




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##### 



Tri-County Financial Corporation
  
  15




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##### 



Community Bank of Tri-County
  
   
  16




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##### 



Tri-County Financial Corporation
  
 17




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##### 



Tri-County Financial Corporation
 This Page Left Blank Intentionally
 18




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##### 



Tri-County Financial Corporation
  Report of Independent Registered Public Accounting Firm
    
    
    20Consolidated Financial StatementsBalance Sheets
    
    
    21Statements of Income
    
    
    22Statements of Changes in Stockholders Equity
    
    
    23Statement of Cash Flows
    
    
    24Notes to Consolidated Financial Statements
    
    
    26
 19




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##### 



Tri-County Financial Corporation
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 
 20




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##### 



Tri-County Financial Corporation
 CONSOLIDATED BALANCE SHEETS
 December 31,2006
    
    
    2005AssetsCash and due from banks
    
    $
    3,157,595
    
    
    $
    7,262,547Federal Funds sold
    
    
    772,351
    
    
    
    640,818Interest-bearing deposits with banks at fair value
    
    
    14,260,560
    
    
    
    14,671,875Securities available for sale
    
    
    9,301,676
    
    
    
    7,178,894Securities held to maturity at amortized cost (fair value approximates $96,148,156 and
$114,271,786, respectively)
    
    
    97,804,849
    
    
    
    116,486,685Federal Home Loan Bank and Federal Reserve Bank stock- at cost
    
    
    6,100,400
    
    
    
    7,190,300Loans receivable  net of allowance for loan losses of $3,783,721 and $3,383,334
    
    
    422,479,799
    
    
    
    369,592,253Premises and equipment, net
    
    
    6,822,461
    
    
    
    6,460,545Foreclosed real estate
    
    
    460,884
    
    
    
    475,561Accrued interest receivable
    
    
    2,837,413
    
    
    
    2,406,542Investment in bank owned life insurance
    
    
    8,762,761
    
    
    
    6,434,175Other assets
    
    
    2,735,265
    
    
    
    2,487,280Total Assets
    
    $
    575,496,014
    
    
    $
    541,287,475LiabilitiesDepositsNoninterest- bearing
    
    $
    43,723,436
    
    
    $
    44,325,083Interest-bearing
    
    
    374,289,966
    
    
    
    319,048,657Total deposits
    
    
    418,013,402
    
    
    
    363,373,740Short-term borrowings
    
    
    6,567,702
    
    
    
    20,074,975Long-term debt
    
    
    96,045,936
    
    
    
    107,823,759Guaranteed preferred beneficial interest in junior subordinated debentures
    
    
    12,000,000
    
    
    
    12,000,000Accrued expenses and other liabilities
    
    
    5,139,637
    
    
    
    3,436,845Total Liabilities
    
    
    537,766,677
    
    
    
    506,709,319Commitments and contingencies (Note 11)Stockholders equityCommon stock  par value $.01; authorized - 15,000,000 shares; issued 2,642,288 and
1,760,991 shares, respectively
    
    
    26,423
    
    
    
    17,610Additional paid in capital
    
    
    9,499,946
    
    
    
    9,057,805Retained earnings
    
    
    28,353,792
    
    
    
    25,580,634Accumulated other comprehensive (loss) income
    
    
    (53,822
    )
    
    
    49,362Unearned ESOP shares
    
    
    (97,002
    )
    
    
    (127,255
    )Total Stockholders Equity
    
    
    37,729,337
    
    
    
    34,578,156Total Liabilities and Stockholders Equity
    
    $
    575,496,014
    
    
    $
    541,287,475
  21




---



##### 



Tri-County Financial Corporation
 CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Interest and Dividend IncomeLoans, including fees
    
    $
    29,292,419
    
    
    $
    22,357,616
    
    
    $
    16,033,239Taxable interest and dividends on investment securities
    
    
    6,211,393
    
    
    
    6,707,913
    
    
    
    5,551,943Interest on deposits with banks
    
    
    181,924
    
    
    
    89,183
    
    
    
    28,157Total Interest and Dividend Income
    
    
    35,685,736
    
    
    
    29,154,712
    
    
    
    21,613,339Interest expenseDeposits
    
    
    12,062,016
    
    
    
    6,472,032
    
    
    
    3,229,502Short-term borrowings
    
    
    921,934
    
    
    
    2,564,550
    
    
    
    1,163,647Long-term debt
    
    
    5,374,978
    
    
    
    4,547,049
    
    
    
    3,420,261Total Interest Expenses
    
    
    18,358,928
    
    
    
    13,583,631
    
    
    
    7,813,410Net interest income
    
    
    17,326,808
    
    
    
    15,571,081
    
    
    
    13,799,929Provision for loan losses
    
    
    405,809
    
    
    
    329,467
    
    
    
    452,998Net Interest Income After Provision For Loan Losses
    
    
    16,920,999
    
    
    
    15,241,614
    
    
    
    13,346,931Noninterest incomeLoan appraisal, credit, and miscellaneous charges
    
    
    362,145
    
    
    
    178,424
    
    
    
    229,125Net gain on sale of loans held for sale
    
    
    
    
    
    
    
    
    
    
    21,404Income from bank owned life insurance
    
    
    328,586
    
    
    
    251,220
    
    
    
    261,411Service charges
    
    
    1,359,409
    
    
    
    1,186,184
    
    
    
    1,189,001Gain on sale of asset
    
    
    
    
    
    
    39,756
    
    
    
    8,250Gain (loss) on the sale of investment securities
    
    
    197,001
    
    
    
    (14,581
    )
    
    
    (61,875
    )Recognition of other than temporary decline in value of marketable securities
    
    
    
    
    
    
    
    
    
    
    (65,000
    )Total Noninterest Income
    
    
    2,247,141
    
    
    
    1,641,003
    
    
    
    1,582,316Noninterest expensesSalary and employee benefits
    
    
    7,006,369
    
    
    
    5,849,226
    
    
    
    5,432,898Occupancy expense
    
    
    1,316,261
    
    
    
    1,156,775
    
    
    
    858,891Advertising
    
    
    474,554
    
    
    
    411,811
    
    
    
    539,715Data processing expense
    
    
    821,392
    
    
    
    665,981
    
    
    
    550,781Depreciation of furniture, fixtures, and equipment
    
    
    513,348
    
    
    
    452,037
    
    
    
    372,237Telephone communications
    
    
    93,319
    
    
    
    85,436
    
    
    
    103,421Valuation allowance on foreclosed real estate
    
    
    
    
    
    
    
    
    
    
    114,606ATM expenses
    
    
    274,403
    
    
    
    277,566
    
    
    
    345,454Office supplies
    
    
    141,144
    
    
    
    138,407
    
    
    
    151,862Professional fees
    
    
    655,503
    
    
    
    629,126
    
    
    
    261,458Office equipment expenses
    
    
    49,816
    
    
    
    50,318
    
    
    
    90,520Other
    
    
    1,216,359
    
    
    
    1,134,647
    
    
    
    946,576Total Noninterest Expenses
    
    
    12,562,468
    
    
    
    10,851,330
    
    
    
    9,768,419Income before income taxes
    
    
    6,605,672
    
    
    
    6,031,287
    
    
    
    5,160,828Income tax expense
    
    
    2,164,415
    
    
    
    2,051,944
    
    
    
    1,440,994Net Income
    
    $
    4,441,257
    
    
    $
    3,979,343
    
    
    $
    3,719,834Earnings per share*Basic
    
    $
    1.68
    
    
    $
    1.53
    
    
    $
    1.44Diluted
    
    $
    1.58
    
    
    $
    1.44
    
    
    $
    1.38
  
 *
    
    Share and per share data have been retroactively adjusted to effect the three-for-two common
stock splits of December 2004, 2005, and 2006 as if they had occurred January 1, 2004. 22




---



##### 



Tri-County Financial Corporation
 Consolidated Statements of Changes in Stockholders Equity
 AccumulatedOtherCommon
    
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    UnearnedStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    ESOP Shares
    
    
    TotalBalance at January 1, 2004
    
    $
    7,533
    
    
    $
    7,975,035
    
    
    $
    20,071,630
    
    
    $
    (3,130
    )
    
    $
    (139,159
    )
    
    $
    27,911,909Comprehensive IncomeNet income
    
    
    
    
    
    
    
    
    
    
    3,719,834
    
    
    
    
    
    
    
    
    
    
    
    3,719,834Change in unrealized gains on investment
securities net of tax of $97,503
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189,270
    
    
    
    
    
    
    
    189,270Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,909,104Cash
dividend $0.21 per share
    
    
    
    
    
    
    
    
    
    
    (541,633
    )
    
    
    
    
    
    
    
    
    
    
    (541,633
    )Excess of fair market value over cost of
leveraged ESOP shares released
    
    
    
    
    
    
    28,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,670Exercise of stock options
    
    
    214
    
    
    
    241,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241,475Repurchase of common stock
    
    
    (93
    )
    
    
    
    
    
    
    (412,880
    )
    
    
    
    
    
    
    
    
    
    
    (412,973
    )Net change in unearned ESOP shares
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,139
    )
    
    
    (20,163
    )3 for 2 stock split in the form of a dividend
    
    
    3,839
    
    
    
    
    
    
    
    (3,839
    )
    
    
    
    
    
    
    
    
    
    
    Tax effect of the exercise of non-ISO stock
options
    
    
    
    
    
    
    7,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,186Balance at December 31, 2004
    
    
    11,469
    
    
    
    8,252,152
    
    
    
    22,833,112
    
    
    
    186,140
    
    
    
    (159,298
    )
    
    
    31,123,575Comprehensive IncomeNet income
    
    
    
    
    
    
    
    
    
    
    3,979,343
    
    
    
    
    
    
    
    
    
    
    
    3,979,343Change in unrealized losses on investment
securities net of tax of $70,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,778
    )
    
    
    
    
    
    
    (136,778
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,842,565Cash
dividend $0.35 per share
    
    
    
    
    
    
    
    
    
    
    (930,669
    )
    
    
    
    
    
    
    
    
    
    
    (930,669
    )Excess of fair market value over cost of
leveraged ESOP shares released
    
    
    
    
    
    
    28,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,354Exercise of stock options
    
    
    231
    
    
    
    259,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259,986Proceeds of private placement
    
    
    158
    
    
    
    472,882
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    473,040Net change in unearned ESOP shares
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,043
    
    
    
    32,036Repurchase of common stock
    
    
    (60
    )
    
    
    
    
    
    
    (295,333
    )
    
    
    
    
    
    
    
    
    
    
    (295,393
    )3 for 2 stock split in the form of a dividend
    
    
    5,819
    
    
    
    
    
    
    
    (5,819
    )
    
    
    
    
    
    
    
    
    
    
    Tax effect of the exercise of non-ISO stock
options
    
    
    
    
    
    
    44,662
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,662Balance at December 31, 2005
    
    
    17,610
    
    
    
    9,057,805
    
    
    
    25,580,634
    
    
    
    49,362
    
    
    
    (127,255
    )
    
    
    34,578,156Comprehensive IncomeNet income
    
    
    
    
    
    
    
    
    
    
    4,441,257
    
    
    
    
    
    
    
    
    
    
    
    4,441,257Change in unrealized losses on investment
securities net of tax of $64,841
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103,184
    )
    
    
    
    
    
    
    (103,184
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,338,073Cash dividend $0,37 per share
    
    
    
    
    
    
    
    
    
    
    (972,966
    )
    
    
    
    
    
    
    
    
    
    
    (972,966
    )Excess of fair market value over cost of
leveraged ESOP shares released
    
    
    
    
    
    
    43,306
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,306Exercise of stock options
    
    
    163
    
    
    
    155,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,122Proceeds of private placement
    
    
    50
    
    
    
    177,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,500Net change in unearned ESOP shares
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,253
    
    
    
    30,248Repurchase of common stock
    
    
    (200
    )
    
    
    
    
    
    
    (686,328
    )
    
    
    
    
    
    
    
    
    
    
    (686,528
    )3 for 2 stock split in the form of a dividend
    
    
    8,805
    
    
    
    
    
    
    
    (8,805
    )
    
    
    
    
    
    
    
    
    
    
    Tax effect of the ESOP dividend
    
    
    
    
    
    
    23,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,111Tax effect of the exercise of non-ISO stock
options
    
    
    
    
    
    
    42,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,315Balance at December 31, 2006
    
    $
    26,423
    
    
    $
    9,499,946
    
    
    $
    28,353,792
    
    
    $
    (53,822
    )
    
    $
    (97,002
    )
    
    $
    37,729,337
  23




---



##### 



Tri-County Financial Corporation
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  2006
    
    
    2005
    
    
    2004Cash Flows From Operating ActivitiesNet income
    
    $
    4,441,257
    
    
    $
    3,979,343
    
    
    $
    3,719,834Adjustments to reconcile net income to net cash provided by operating activities:Valuation allowance on foreclosed real estate
    
    
    
    
    
    
    
    
    
    
    114,606Provision for loan losses
    
    
    405,809
    
    
    
    329,467
    
    
    
    452,998(Gain) loss on sales of investment securities
    
    
    (197,000
    )
    
    
    14,581
    
    
    
    61,875Recognition of other than temporary decline in value of marketable securities
    
    
    
    
    
    
    
    
    
    
    65,000Depreciation and amortization
    
    
    1,001,638
    
    
    
    811,866
    
    
    
    636,711Net amortization of premium/discount on mortgage backed securities and
investments
    
    
    27,749
    
    
    
    341,858
    
    
    
    116,256Excess tax benefits on stock-based compensation
    
    
    (42,315
    )
    
    
    
    
    
    
    Increase in cash surrender of bank owned life insurance
    
    
    (328,586
    )
    
    
    (251,220
    )
    
    
    (261,411
    )Deferred income tax (benefit) expense
    
    
    (412,681
    )
    
    
    (452,351
    )
    
    
    65,850Increase in accrued interest receivable
    
    
    (430,871
    )
    
    
    (536,407
    )
    
    
    (551,817
    )(Increase) decrease in deferred loan fees
    
    
    (113,379
    )
    
    
    (160,660
    )
    
    
    114,618Increase in accrued expenses and other liabilities
    
    
    1,801,223
    
    
    
    783,124
    
    
    
    349,818Decrease in other assets
    
    
    161,737
    
    
    
    386,834
    
    
    
    906,843Loss (gain) on disposal of premises and equipment
    
    
    
    
    
    
    36,216
    
    
    
    (8,250
    )Proceeds from sale of loans held for sale
    
    
    
    
    
    
    
    
    
    
    496,284Loss (gain) on sale of other real estate owned
    
    
    
    
    
    
    (39,756
    )
    
    
    32,597Gain on sales of loans held for sale
    
    
    
    
    
    
    
    
    
    
    (21,404
    )Net Cash Provided by Operating Activities
    
    
    6,314,581
    
    
    
    5,242,895
    
    
    
    6,290,408Cash Flows From Investing ActivitiesPurchase of investment securities available for sale
    
    
    (3,127,695
    )
    
    
    (9,655
    )
    
    
    (27,944,571
    )Proceeds from sale, redemption or principal payments of investment securities
available for sale
    
    
    1,033,358
    
    
    
    5,540,515
    
    
    
    53,031,692Purchase of investment securities held to maturity
    
    
    (5,100,000
    )
    
    
    (25,749,248
    )
    
    
    (143,349,900
    )Proceeds from maturities or principal payments of investment securities held to
maturity
    
    
    23,766,300
    
    
    
    71,679,258
    
    
    
    42,511,543Net sale (purchase) of FHLB and Federal Reserve stock
    
    
    1,089,900
    
    
    
    (1,046,000
    )
    
    
    (1,367,450
    )Loans originated or acquired
    
    
    (181,343,309
    )
    
    
    (202,475,708
    )
    
    
    (192,785,961
    )Principal collected on loans
    
    
    128,163,333
    
    
    
    122,039,699
    
    
    
    120,633,447Purchase of premises and equipment
    
    
    (1,363,554
    )
    
    
    (1,296,714
    )
    
    
    (1,068,435
    )Proceeds from disposal of premises and equipment
    
    
    
    
    
    
    
    
    
    
    8,250Purchase of bank owned life insurance policies
    
    
    (2,000,000
    )
    
    
    
    
    
    
    Proceeds of sale of foreclosed real estate
    
    
    14,677
    
    
    
    39,756
    
    
    
    91,597Net Cash Used in Investing Activities
    
    
    (38,866,990
    )
    
    
    (31,278,097
    )
    
    
    (150,239,788
    )
 24




---



##### 



Tri-County Financial Corporation
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 2006
    
    
    2005
    
    
    2004Cash Flows From Financing ActivitiesNet increase in deposits
    
    
    54,639,662
    
    
    
    96,619,236
    
    
    
    39,199,936Net increase (decrease) in short-term borrowings
    
    
    (13,507,273
    )
    
    
    (95,229,235
    )
    
    
    84,112,925Dividends paid
    
    
    (972,966
    )
    
    
    (930,669
    )
    
    
    (541,633
    )Exercise of stock options
    
    
    156,122
    
    
    
    304,648
    
    
    
    248,661Excess tax benefits on stock-based compensation
    
    
    42,315
    
    
    
    
    
    
    
    Proceeds from private placement
    
    
    177,500
    
    
    
    473,040
    
    
    
    Net change in unearned ESOP shares
    
    
    96,665
    
    
    
    60,390
    
    
    
    8,508Repurchase of common stock
    
    
    (686,528
    )
    
    
    (295,393
    )
    
    
    (412,973
    )Proceeds from long-term borrowings
    
    
    15,260,000
    
    
    
    30,000,000
    
    
    
    30,000,000Payments of long-term borrowings
    
    
    (27,037,822
    )
    
    
    (5,107,354
    )
    
    
    (10,120,063
    )Trust preferred debentures
    
    
    
    
    
    
    5,000,000
    
    
    
    7,000,000Net Cash Provided by Financing Activities
    
    
    28,167,675
    
    
    
    30,894,663
    
    
    
    149,495,361(Decrease) Increase in Cash and Cash Equivalents
    
    
    (4,384,734
    )
    
    
    4,859,461
    
    
    
    5,545,981Cash and Cash Equivalents at Beginning of Year
    
    
    22,575,240
    
    
    
    17,715,779
    
    
    
    12,169,798Cash and Cash Equivalents at End of Year
    
    $
    18,190,506
    
    
    $
    22,575,240
    
    
    $
    17,715,779Supplementary Cash Flow InformationCash paid during the year forInterest
    
    $
    18,057,377
    
    
    $
    13,503,581
    
    
    $
    7,784,244Income taxes
    
    
    2,567,400
    
    
    
    2,032,500
    
    
    
    1,232,500
  25




---



##### 



Notes To Consolidated Financial Statements
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Nature of Operations
  Use of Estimates
  Significant Group Concentrations of Credit Risk
  Cast and Cash Equivalents
  Securities
   Loans Held for Sale
  26




---



##### 



Tri-County Financial Corporation
  Loans Receivable
     Allowance for Loan Losses
     27




---



##### 



Notes To Consolidated Financial Statements
  Servicing
    Premises and Equipment
  Buildings and improvements
    
    10 - 50 yearsFurniture and equipment
    
    3-15 yearsAutomobiles
    
    5 years
  Foreclosed Real Estate
  Transfers of Financial Assets
  Advertising Costs
  28




---



##### 



Tri-County Financial Corporation
 Income Taxes
  Off Balance Sheet Credit Related Financial Instruments
  Stock-Based Compensation
    Earnings Per Common Share
   Years Ended December 31,2006
    
    
    2005
    
    
    2004Net income
    
    $
    4,441,256
    
    
    $
    3,979,343
    
    
    $
    3,719,834Average number of common shares outstanding
    
    
    2,637,531
    
    
    
    2,597,807
    
    
    
    2,579,264Effect of dilutive options
    
    
    178,454
    
    
    
    165,809
    
    
    
    117,768Average number of shares used to
calculate earnings per share outstanding
    
    
    2,815,985
    
    
    
    2,763,616
    
    
    
    2,697,032
 29




---



##### 



Notes to Consolidated Financial Statements
  Comprehensive Income
   Years Ended December 31,2006
    
    
    2005
    
    
    2004Net income
    
    $
    4,441,257
    
    
    $
    3,979,343
    
    
    $
    3,719,834Other
comprehensive income itemsUnrealized holding gains
(losses) on available for sale securities net of tax expense (benefit)
of $9,136, $(75,419), and $74,465, respectively
    
    
    17,735
    
    
    
    (146,110
    )
    
    
    148,473Plus: Reclassification adjustment for (gains) losses net of tax
(provision) benefit of ($76,082), $5,249 and $21,038,
respectively
    
    
    (120,919
    )
    
    
    9,332
    
    
    
    40,797Total other comprehensive income
    
    
    (103,184
    )
    
    
    (136,778
    )
    
    
    189,270Total Comprehensive Income
    
    $
    4,338,073
    
    
    $
    3,842,565
    
    
    $
    3,909,104
 Recent Accounting Pronouncements
     30




---



##### 



Tri-County Financial Corporation
    Accounting for Deferred
Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements. Employers Accounting for Postretirement Benefits Other Than Pensions.
  NOTE 2  RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANK
  31




---



##### 



Notes to Consolidated Financial Statements
 NOTE 3
 INVESTMENT SECURITIES
 December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for SaleAsset-backed securities issued by GSEs
    
    $
    5,882,361
    
    
    $
    22,429
    
    
    $
    206,930
    
    
    $
    5,697,860Corporate equity securities
    
    
    254,810
    
    
    
    86,873
    
    
    
    
    
    
    
    341,683Bond mutual funds
    
    
    3,246,054
    
    
    
    18,173
    
    
    
    2,094
    
    
    
    3,262,133Total Securities Available for Sale
    
    $
    9,383,225
    
    
    $
    127,475
    
    
    $
    209,024
    
    
    $
    9,301,676Securities Held-to-MaturityAsset-backed securities issued byGSEs
    
    $
    66,904,325
    
    
    $
    208,890
    
    
    $
    1,716,038
    
    
    $
    65,397,177Other
    
    
    29,955,894
    
    
    
    211,181
    
    
    
    360,726
    
    
    
    29,806,349Total Debt Securities Held-to-Maturity
    
    
    96,860,219
    
    
    
    420,071
    
    
    
    2,076,764
    
    
    
    95,203,526U.S. government obligations
    
    
    800,000
    
    
    
    
    
    
    
    
    
    
    
    800,000Other investments
    
    
    144,630
    
    
    
    
    
    
    
    
    
    
    
    144,630Total Securities Held-to-Maturity
    
    $
    97,804,849
    
    
    $
    420,071
    
    
    $
    2,076,764
    
    
    $
    96,148,156
 December 31, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for SaleAsset-backed securities issued by GSEs
    
    $
    6,494,335
    
    
    $
    42,077
    
    
    $
    203,717
    
    
    $
    6,332,695Corporate equity securities
    
    
    481,010
    
    
    
    239,338
    
    
    
    1,000
    
    
    
    719,348Bond mutual funds
    
    
    128,756
    
    
    
    
    
    
    
    1,905
    
    
    
    126,851Total Securities Available for Sale
    
    $
    7,104,101
    
    
    $
    281,415
    
    
    $
    206,622
    
    
    $
    7,178,894Securities Held-to-MaturityAsset-backed securities issued byGSEs
    
    $
    78,001,293
    
    
    $
    182,831
    
    
    $
    1,777,533
    
    
    $
    76,406,591Other
    
    
    37,382,662
    
    
    
    53,007
    
    
    
    673,204
    
    
    
    36,762,465Total Debt Securities Held-to-Maturity
    
    
    115,383,955
    
    
    
    235,838
    
    
    
    2,450,737
    
    
    
    113,169,056U.S. government obligations
    
    
    499,091
    
    
    
    
    
    
    
    
    
    
    
    499,091Other investments
    
    
    603,639
    
    
    
    
    
    
    
    
    
    
    
    603,639Total Securities Held-to-Maturity
    
    $
    116,486,685
    
    
    $
    235,838
    
    
    $
    2,450,737
    
    
    $
    114,271,786
  32




---



##### 



Tri-County Financial Corporation
  Continuous unrealized losses existing forTotalLess Than
    
    
    More Than
    
    
    unrealizedFair Value
    
    
    12 Months
    
    
    12 Months
    
    
    LossesAsset-backed securities issued by GSEs
    
    $
    5,150,991
    
    
    $
    
    
    
    $
    206,930
    
    
    $
    206,930Bond mutual funds
    
    
    94,893
    
    
    
    
    
    
    
    2,094
    
    
    
    2,094$
    5,245,884
    
    
    $
    
    
    
    $
    209,024
    
    
    $
    209,024
    Continuous unrealized losses existing forTotalLess Than
    
    
    More Than
    
    
    unrealizedFair Value
    
    
    12 Months
    
    
    12 Months
    
    
    LossesAsset-backed securities issued by GSEs
    
    $
    49,193,723
    
    
    $
    1,450
    
    
    $
    1,714,588
    
    
    $
    1,716,038Asset-backed securities issued by other
    
    
    16,072,622
    
    
    
    
    
    
    
    360,726
    
    
    
    360,726$
    65,266,345
    
    
    $
    1,450
    
    
    $
    2,075,314
    
    
    $
    2,076,764
   33




---



##### 



Notes to Consolidated Financial Statements
 Available for Sale
    
    
    Held to MaturityAmortized
    
    
    Estimated
    
    
    Amortized
    
    
    EstimatedCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueWithin one year
    
    $
    3,246,054
    
    
    $
    3,262,133
    
    
    $
    811,078
    
    
    $
    811,078Over one year through five years
    
    
    
    
    
    
    
    
    
    
    133,552
    
    
    
    133,552Over five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,246,054
    
    
    
    3,262,133
    
    
    
    944,630
    
    
    
    944,630Mortgage-backed securities
    
    
    6,137,171
    
    
    
    6,039,543
    
    
    
    96,860,219
    
    
    
    95,203,526$
    9,383,225
    
    
    $
    9,301,676
    
    
    $
    97,804,849
    
    
    $
    96,148,156
  NOTE 4  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
  2006
    
    
    2005Commercial real estate
    
    $
    177,923,349
    
    
    $
    166,850,838Residential first mortgages
    
    
    80,781,271
    
    
    
    73,627,717Construction and land development
    
    
    42,746,306
    
    
    
    32,608,002Home equity and second mortgage
    
    
    24,572,235
    
    
    
    25,884,406Commercial loans
    
    
    79,629,910
    
    
    
    54,737,693Consumer loans
    
    
    2,812,945
    
    
    
    3,128,425Commercial equipment
    
    
    18,287,840
    
    
    
    16,742,220426,753,855
    
    
    
    373,579,301Less:Deferred loan fees
    
    
    490,335
    
    
    
    603,714Allowance for loan loss
    
    
    3,783,721
    
    
    
    3,383,3344,274,056
    
    
    
    3,987,048$
    422,479,799
    
    
    $
    369,592,253
  2006
    
    
    2005
    
    
    2004Balance January 1,
    
    $
    3,383,334
    
    
    $
    3,057,558
    
    
    $
    2,572,799Add:Provision charged to operations
    
    
    405,809
    
    
    
    329,467
    
    
    
    452,998Recoveries
    
    
    2,759
    
    
    
    5,184
    
    
    
    49,083Less:Charge-offs
    
    
    8,181
    
    
    
    8,875
    
    
    
    17,322Balance, December 31
    
    $
    3,783,721
    
    
    $
    3,383,334
    
    
    $
    3,057,558
   34




---



##### 



Tri-County Financial Corporation
  2006
    
    
    2005Balance, beginning of year
    
    $
    1,682,994
    
    
    $
    1,268,353New loans made during year
    
    
    1,967,257
    
    
    
    524,708Repayments made during year
    
    
    (991,108
    )
    
    
    (110,067
    )Changes due to changes in directors and officers
    
    
    520,000
    
    
    
    Balance, end of year
    
    $
    3,179,142
    
    
    $
    1,682,994
 NOTE 5  LOAN SERVICING
   Year Ended December 31,2006
    
    
    2005
    
    
    2004Balance at beginning of the year
    
    $
    326,061
    
    
    $
    477,202
    
    
    $
    676,940Additions
    
    
    
    
    
    
    
    
    
    
    7,861Amortization
    
    
    (111,102
    )
    
    
    (151,141
    )
    
    
    (207,599
    )$
    214,959
    
    
    $
    326,061
    
    
    $
    477,202
 NOTE 6  FORECLOSED REAL ESTATE
  Years ended December 31,2006
    
    
    2005
    
    
    2004Balance at beginning of year
    
    $
    671,740
    
    
    $
    671,740
    
    
    $
    972,899Provision for losses
    
    
    
    
    
    
    
    
    
    
    114,606Charge-offs
    
    
    
    
    
    
    
    
    
    
    (415,765
    )Balance at end of year
    
    $
    671,740
    
    
    $
    671,740
    
    
    $
    671,740
  Years ended December 31,2006
    
    
    2005
    
    
    2004Net gain on sale of foreclosed real estate
    
    $
    
    
    
    $
    
    
    
    $
    Donation of property
    
    
    
    
    
    
    
    
    
    
    25,000Provision for losses
    
    
    
    
    
    
    
    
    
    
    114,606Operating expenses
    
    
    3,632
    
    
    
    3,083
    
    
    
    6,278$
    3,632
    
    
    $
    3,083
    
    
    $
    145,884
 35




---



##### 



Notes to Consolidated Financial Statements
 NOTE 7
 PREMISES AND EQUIPMENT
  2006
    
    
    2005Land
    
    $
    2,096,381
    
    
    $
    1,368,077Building and improvements
    
    
    5,856,357
    
    
    
    5,579,868Furniture and equipment
    
    
    3,021,560
    
    
    
    2,662,799Automobiles
    
    
    168,426
    
    
    
    168,426Total cost
    
    
    11,142,724
    
    
    
    9,779,170Less accumulated depreciation
    
    
    4,320,263
    
    
    
    3,318,625Premises and equipment, net
    
    $
    6,822,461
    
    
    $
    6,460,545
  2007
    
    $
    342,1502008
    
    
    456,0212009
    
    
    374,7052010
    
    
    305,2522011
    
    
    309,533Thereafter
    
    
    3,926,918Total
    
    $
    5,714,579
  NOTE 8
 DEPOSITS
  2006
    
    
    2005Noninterest-bearing demand
    
    $
    43,723,436
    
    
    $
    44,325,083Interest-bearing
demand
    
    
    41,117,213
    
    
    
    48,666,460Money market deposits
    
    
    91,072,187
    
    
    
    40,195,630Savings
    
    
    30,187,404
    
    
    
    34,800,535Certificates of deposit
    
    
    211,913,163
    
    
    
    195,386,032Total interest-bearing
    
    
    374,289,966
    
    
    
    319,048,657Total deposits
    
    $
    418,013,403
    
    
    $
    363,373,740
  36




---



##### 



Tri-County Financial Corporation
  2007
    
    $
    176,092,5182008
    
    
    22,507,4762009
    
    
    5,906,9632010
    
    
    5,705,6022011
    
    
    1,700,605$
    211,913,163
 NOTE 9
 SHORT-TERM BORROWINGS AND LONG-TERM DEBT
  Fixed Rate
    
    VariableFixed Rate
    
    Convertible
    
    Convertible2006Highest rate
    
    
    5.15
    %
    
    
    6.25
    %
    
    
    4.91
    %Lowest rate
    
    
    1.00
    %
    
    
    3.27
    %
    
    
    4.17
    %Weighted average rate
    
    
    4.29
    %
    
    
    4.70
    %
    
    
    4.65
    %Matures through
    
    
    2036
    
    
    
    2014
    
    
    
    20202005Highest rate
    
    
    5.43
    %
    
    
    6.25
    %
    
    
    3.88
    %Lowest rate
    
    
    1.13
    %
    
    
    3.27
    %
    
    
    3.88
    %Weighted average rate
    
    
    3.99
    %
    
    
    4.54
    %
    
    
    3.88
    %Matures through
    
    
    2022
    
    
    
    2014
    
    
    
    2020
  At or for the Year Ended December 31,dollars in thousands
    
    2006
    
    2005
    
    2004Long-term debtMaximum outstanding long-term debt of any month end
    
    $
    108,078
    
    
    $
    107,826
    
    
    $
    82,931Average outstanding long-term debt
    
    
    101,520
    
    
    
    93,409
    
    
    
    73,830Approximate average rate paid on long-term debt
    
    
    4.42
    %
    
    
    4.25
    %
    
    
    4.44
    %Short-term borrowingMaximum outstanding short-term debt at any month end
    
    $
    37,590
    
    
    $
    123,968
    
    
    $
    122,693Average outstanding short-term debt
    
    
    18,129
    
    
    
    82,665
    
    
    
    64,736Approximate average rate paid on short-term debt
    
    
    4.99
    %
    
    
    3.10
    %
    
    
    1.80
    %
   37




---



##### 



Notes to Consolidated Financial Statements
 December 31, 2006
 Fixed Rate
    
    VariableFixed Rate
    
    Convertible
    
    Convertible
    
    TotalDue in 2007
    
    $
    5,000,000
    
    
    $
    
    
    
    $
    
    
    
    $
    5,000,000Due in 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Due in 2009
    
    
    30,000,000
    
    
    
    
    
    
    
    
    
    
    
    30,000,000Due in 2010
    
    
    5,000,000
    
    
    
    10,000,000
    
    
    
    
    
    
    
    15,000,000Due in 2011
    
    
    
    
    
    
    
    
    
    
    10,000,000
    
    
    
    10,000,000Thereafter
    
    
    1,045,936
    
    
    
    15,000,000
    
    
    
    20,000,000
    
    
    
    36,045,936$
    41,045,936
    
    
    $
    25,000,000
    
    
    $
    30,000,000
    
    
    $
    96,045,936
    NOTE
10  INCOME TAXES
  2006
    
    
    2005
    
    
    2004CurrentFederal
    
    $
    2,014,469
    
    
    $
    2,219,558
    
    
    $
    1,284,026State
    
    
    562,627
    
    
    
    284,737
    
    
    
    91,1182,577,096
    
    
    
    2,504,295
    
    
    
    1,375,144DeferredFederal
    
    
    (347,874
    )
    
    
    (398,238
    )
    
    
    57,973State
    
    
    (64,807
    )
    
    
    (54,113
    )
    
    
    7,877(412,681
    )
    
    
    (452,351
    )
    
    
    65,850Total Income Tax Expense
    
    $
    2,164,415
    
    
    $
    2,051,944
    
    
    $
    1,440,994
 38




---



##### 



Tri - County Financial Corporation
  2006
    
    
    2005
    
    
    2004Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofPre Tax
    
    
    
    
    
    
    Pre Tax
    
    
    
    
    
    
    Pre TaxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    IncomeExpected income tax expense at
federal tax rate
    
    $
    2,245,928
    
    
    
    34.00
    %
    
    $
    2,050,638
    
    
    
    34.00
    %
    
    $
    1,754,682
    
    
    
    34.00
    %State taxes net of federal benefit
    
    
    328,561
    
    
    
    4.97
    %
    
    
    152,212
    
    
    
    2.52
    %
    
    
    65,337
    
    
    
    1.27
    %Nondeductible expenses
    
    
    4,779
    
    
    
    0.07
    %
    
    
    3,124
    
    
    
    0.05
    %
    
    
    2,527
    
    
    
    0.05
    %Nontaxable income
    
    
    (196,225
    )
    
    
    (2.97
    %)
    
    
    (154,337
    )
    
    
    (2.56
    %)
    
    
    (179,442
    )
    
    
    -3.48
    %Donation of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (202,109
    )
    
    
    -3.92
    %Other
    
    
    (218,628
    )
    
    
    (3.31
    %)
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    $
    2,164,415
    
    
    
    32.77
    %
    
    $
    2,051,944
    
    
    
    34.02
    %
    
    $
    1,440,994
    
    
    
    27.92
    %
  2006
    
    
    2005Deferred tax assetsDeferred fees
    
    $
    3,298
    
    
    $
    4,583Allowance for loan losses
    
    
    1,431,675
    
    
    
    1,277,020Deferred compensation
    
    
    704,417
    
    
    
    471,786Valuation allowance on foreclosed real estate
    
    
    259,991
    
    
    
    259,991Unrealized loss on investment securities available for sale
    
    
    27,726
    
    
    
    2,427,107
    
    
    
    2,013,380Deferred tax liabilitiesFHLB stock dividends
    
    
    152,896
    
    
    
    152,896Depreciation
    
    
    362,946
    
    
    
    389,626Unrealized gain on investment
securities available for sale
    
    
    
    
    
    
    25,431515,842
    
    
    
    567,953$
    1,911,265
    
    
    $
    1,445,427
    39




---



##### 



Notes to Consolidated Financial Statements
 NOTE
11  COMMITMENTS AND CONTINGENCIES
    NOTE
12  STOCK OPTION AND INCENTIVE PLAN
    2006
    
    2005
    
    2004Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    444,753
    
    
    $
    13.59
    
    
    
    403,382
    
    
    $
    10.72
    
    
    
    346,937
    
    
    $
    7.47Granted
    
    
    
    
    
    
    
    
    
    
    89,289
    
    
    
    22.29
    
    
    
    130,434
    
    
    
    15.34Exercised
    
    
    (19,585
    )
    
    
    7.97
    
    
    
    (46,980
    )
    
    
    5.53
    
    
    
    (69,311
    )
    
    
    3.31Forfeitures
    
    
    (8,072
    )
    
    
    13.24
    
    
    
    (938
    )
    
    
    11.99
    
    
    
    (4,679
    )
    
    
    8.57Outstanding at end of year
    
    
    417,097
    
    
    
    13.86
    
    
    
    444,753
    
    
    
    13.59
    
    
    
    403,382
    
    
    
    10.72
 40




---



##### 



Tri-County Financial Corporation
  Number Outstanding
    
    Weighted Average Remaining
    
    Weighted AverageDecember 31, 2006
    
    Contractual Life
    
    Exercise Price33,193
    
    2 years
    
    $
    7.1623,126
    
    3 years
    
    
    7.8837,639
    
    4 years
    
    
    7.9040,851
    
    5 years
    
    
    7.9022,822
    
    6 years
    
    
    11.5671,088
    
    7 years
    
    
    12.9199,878
    
    8 years
    
    
    15.8988,502
    
    9 years
    
    
    22.29417,097
    
    
    
    
    13.86
  December 31,2005
    
    
    2004Net income, as reported
    
    $
    3,979,343
    
    
    $
    3,719,834Additional expense had the Company adopted SFAS 123R
    
    
    (942,297
    )
    
    
    (735,180
    )Pro forma net income
    
    $
    3,037,046
    
    
    $
    2,984,654Earnings per share as reportedBasic
    
    $
    1.53
    
    
    $
    1.44Diluted
    
    $
    1.44
    
    
    $
    1.38Pro forma earnings per shareBasic
    
    $
    1.17
    
    
    $
    1.15Diluted
    
    $
    1.10
    
    
    $
    1.11
   2005
    
    2004Dividend yield
    
    
    1.02
    %
    
    
    1.80
    %Expected volatility
    
    
    34.89
    
    
    
    25.51Risk-free interest rate
    
    
    4.66
    
    
    
    4.31Expected lives (in years)
    
    
    10
    
    
    
    10Weighted average fair value
    
    $
    10.55
    
    
    $
    5.63
 NOTE 13EMPLOYEE BENEFIT PLANS
  41




---



##### 



Notes to Consolidated Financial Statements
     NOTE 14REGULATORY MATTERS
    42




---



##### 



Tri-County Financial Corporation
 To Be Considered WellRequired for Capital
    
    Capitalized UnderActual
    
    Adequacy Purposes
    
    Prompt Corrective ActionAt
December 31, 2006Total capital (to risk weighted assets)The Company
    
    $
    53,504
    
    
    
    11.98
    %
    
    $
    35,723
    
    
    
    8.00
    %The Bank
    
    $
    52,388
    
    
    
    11.78
    %
    
    $
    35,648
    
    
    
    8.00
    %
    
    $
    44,560
    
    
    
    10.00
    %Tier 1 capital (to risk weighted assets)The Company
    
    $
    49,675
    
    
    
    11.12
    %
    
    $
    17,862
    
    
    
    4.00
    %The Bank
    
    $
    48,559
    
    
    
    10.92
    %
    
    $
    17,824
    
    
    
    4.00
    %
    
    $
    26,736
    
    
    
    6.00
    %Tier 1 capital (to average assets)The Company
    
    $
    49,675
    
    
    
    8.74
    %
    
    $
    22,722
    
    
    
    4.00
    %The Bank
    
    $
    48,559
    
    
    
    8.58
    %
    
    $
    22,682
    
    
    
    4.00
    %
    
    $
    28,353
    
    
    
    5.00
    %At
December 31, 2005Total capital (to risk weighted assets)The Company
    
    $
    49,544
    
    
    
    11.84
    %
    
    $
    33,463
    
    
    
    8.00
    %The Bank
    
    $
    48,753
    
    
    
    11.67
    %
    
    $
    33,391
    
    
    
    8.00
    %
    
    $
    41,739
    
    
    
    10.00
    %Tier 1 capital (to risk weighted assets)The Company
    
    $
    46,161
    
    
    
    11.04
    %
    
    $
    16,731
    
    
    
    4.00
    %The Bank
    
    $
    45,370
    
    
    
    10.87
    %
    
    $
    16,696
    
    
    
    4.00
    %
    
    $
    25,044
    
    
    
    6.00
    %Tier 1 capital (to average assets)The Company
    
    $
    46,161
    
    
    
    8.55
    %
    
    $
    21,590
    
    
    
    4.00
    %The Bank
    
    $
    45,370
    
    
    
    8.42
    %
    
    $
    21,550
    
    
    
    4.00
    %
    
    $
    26,937
    
    
    
    5.00
    %
 NOTE 15FAIR VALUE OF FINANCIAL INSTRUMENTS
  December 31, 2006
    
    December 31, 2005Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssetsCash and cash equivalents
    
    $
    18,190,506
    
    
    $
    18,190,506
    
    
    $
    22,575,240
    
    
    $
    22,575,240Investment securities and stock in FHLB and FRB
    
    
    113,206,926
    
    
    
    111,550,233
    
    
    
    130,855,879
    
    
    
    128.640.980Loans receivable, net
    
    
    422,479,799
    
    
    
    425,336,840
    
    
    
    369,592,253
    
    
    
    370,164,000LiabilitiesSavings, checking, and money market accounts
    
    
    206,100,240
    
    
    
    206,100,240
    
    
    
    167,987,707
    
    
    
    167,987,707Time certificates
    
    
    211,913,163
    
    
    
    211,025,358
    
    
    
    195,386,032
    
    
    
    189,574,936Long-term debt and other borrowed funds
    
    
    102,613,638
    
    
    
    101,093,038
    
    
    
    127,898,734
    
    
    
    126,788,777Guaranteed preferred beneficial interest in
junior subordinated securities
    
    $
    12,000,000
    
    
    $
    12,000,000
    
    
    $
    12,000,000
    
    
    $
    12,000,000
  43




---



##### 



Notes to Consolidated Financial Statements
  Valuation Methodology
 Cash and Cash Equivalents 
 Investment Securities 
 Loans Receivable 
 Deposits 
 Time Certificates 
 Long-Term Debt and Other Borrowed Funds 
 Guaranteed Preferred Beneficial Interest in Junior Subordinated Securities 
 Off-Balance Sheet Instruments 
  NOTE
16  GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES
   44




---



##### 



Tri-County Financial Corporation
   NOTE
17  PRIVATE PLACEMENTS
   45




---



##### 



Notes to Consolidated Financial Statements
 NOTE 18  CONDENSED FINANCIAL STATEMENTS  PARENT COMPANY ONLY
  BALANCE SHEETS
 December 31,2006
    
    
    2005AssetsCash  noninterest bearing
    
    $
    799,984
    
    
    $
    881,185Cash  interest bearing
    
    
    155,244
    
    
    
    167,830Investment securities available for sale
    
    
    37,475
    
    
    
    35,838Investment in wholly owned subsidiaries
    
    
    48,985,298
    
    
    
    45,791,231Other assets
    
    
    565,881
    
    
    
    853,740Total
Assets
    
    $
    50,543,882
    
    
    $
    47,729,824LiabilitiesCurrent liabilities
    
    $
    442,545
    
    
    $
    779,668Guaranteed preferred beneficial interest in junior subordinated debentures
    
    
    12,372,000
    
    
    
    12,372,000Total Liabilities
    
    
    12,814,545
    
    
    
    13,151,668Stockholders EquityCommon stock
    
    
    26,423
    
    
    
    17,610Surplus
    
    
    9,499,946
    
    
    
    9,057,805Retained earnings
    
    
    28,353,792
    
    
    
    25,580,634Total accumulated other comprehensive (loss) income
    
    
    (53,822
    )
    
    
    49,363Unearned ESOP shares
    
    
    (97,002
    )
    
    
    (127,256
    )Total Stockholders Equity
    
    
    37,729,337
    
    
    
    34,578,156Total Liabilities and Stockholders Equity
    
    $
    50,543,882
    
    
    $
    47,729,824
 46




---



##### 



Tri-County Financial Corporation
 CONDENSED STATEMENTS OF INCOME
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Dividends from subsidiary
    
    $
    2,000,000
    
    
    $
    17,00,000
    
    
    $
    Interest income
    
    
    16,220
    
    
    
    16,059
    
    
    
    6,349Interest expense
    
    
    891,891
    
    
    
    580,584
    
    
    
    140,341Net Interest Income
    
    
    1,124,330
    
    
    
    1,135,475
    
    
    
    (133,992
    )Miscellaneous expenses
    
    
    (420,129
    )
    
    
    ( 257,031
    )
    
    
    (166,364
    )Income before income taxes and equity in undistributed net income of subsidiary
    
    
    704,201
    
    
    
    878,444
    
    
    
    (300,356
    )Federal and state income tax benefit
    
    
    439,804
    
    
    
    279,328
    
    
    
    102,120Equity in undistributed net income of subsidiary
    
    
    3,297,252
    
    
    
    2,821,571
    
    
    
    3,918,070Net Income
    
    $
    4,441,257
    
    
    $
    3,979,343
    
    
    $
    3,719,834
 CONDENSED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet in come
    
    $
    4,441,257
    
    
    $
    3,979,343
    
    
    $
    3,719,834Adjustments to reconcile net income to net cash provided by operating activitiesEquity in undistributed earnings of subsidiary
    
    
    (3,297,251
    )
    
    
    (2,821,571
    )
    
    
    (3,918,070
    )Excess tax benefits on stock-based compensation
    
    
    (42,315
    )
    
    
    
    
    
    
    ( Decrease) increase in other assets
    
    
    (28,023
    )
    
    
    (659,666
    )
    
    
    763,470Deferred income tax benefit
    
    
    (56,117
    )Increase in current liabilities
    
    
    77,191
    
    
    
    489,477
    
    
    
    30,835Net Cash Provided by Operating Activities
    
    
    1,094,742
    
    
    
    987,583
    
    
    
    596,069Cash Flows from Investing ActivitiesPurchase of investment securities available for sale
    
    
    (1,637
    )
    
    
    (1,172
    )
    
    
    (1,514
    )Net cash used by in vesting activities
    
    
    (1,637
    )
    
    
    (1,172
    )
    
    
    (1,514
    )Cash Flows from Financing ActivitiesSale of guaranteed preferred beneficial interests in junior subordinated securities
    
    
    
    
    
    
    5,155,000
    
    
    
    7,217,000Downstream of capital to subsidiary
    
    
    
    
    
    
    (5,000,000
    )
    
    
    (7,000,000
    )Investment in trust subsidiary
    
    
    
    
    
    
    (155,000
    )
    
    
    (217,000
    )Dividends paid
    
    
    (972,966
    )
    
    
    (930,669
    )
    
    
    (541,633
    )Proceeds from private placement
    
    
    177,500
    
    
    
    473,040
    
    
    
    Exercise of stock options
    
    
    156,122
    
    
    
    304,648
    
    
    
    248,661Excess tax benefits on stock-based compensation
    
    
    (42,315
    )
    
    
    
    
    
    
    Net change in ESOP loan
    
    
    96,665
    
    
    
    60,390
    
    
    
    8,506Redemption of common stock
    
    
    (686,528
    )
    
    
    (295,393
    )
    
    
    (412,973
    )Net Cash Used in Financing Activities
    
    
    (1,186,892
    )
    
    
    (387,984
    )
    
    
    (697,439
    )Increase (Decrease) in Cash
    
    
    (93,787
    )
    
    
    598,427
    
    
    
    (102,884
    )Cash at Beginning of Year
    
    
    1,049,015
    
    
    
    450,588
    
    
    
    553,472Cash at End of Year
    
    $
    955,228
    
    
    $
    1,049,015
    
    
    $
    450,588
 47




---



##### 



Notes to Consolidated Financial Statements
 NOTE
19  QUARTERLY FINANCIAL RESULTS (UNAUDITED)
 2006
    
    2006
    
    2006
    
    2006
    
    2005
    
    2005
    
    2005
    
    2005Fourth
    
    Third
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    FirstQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterInterest and dividend income
    
    $
    9,371,065
    
    
    $
    9,186,802
    
    
    $
    8,827,910
    
    
    $
    8,299,959
    
    
    $
    7,872,103
    
    
    $
    7,433,702
    
    
    $
    7,284,039
    
    
    $
    6,564,868Interest Expense
    
    
    4,995,112
    
    
    
    4,844,077
    
    
    
    4,473,923
    
    
    
    4,045,816
    
    
    
    3,838,465
    
    
    
    3,566,630
    
    
    
    3,369,456
    
    
    
    2,809,080Net interest income
    
    
    4,375,953
    
    
    
    4,342,725
    
    
    
    4,353,987
    
    
    
    4,254,143
    
    
    
    4,033,638
    
    
    
    3,867,072
    
    
    
    3,914,583
    
    
    
    3,755,788Provision for loan loss
    
    
    116,674
    
    
    
    116,563
    
    
    
    86,087
    
    
    
    86,485
    
    
    
    129,160
    
    
    
    11,183
    
    
    
    126,097
    
    
    
    63,027Net interest income after provision
    
    
    4,259,279
    
    
    
    4,226,162
    
    
    
    4,267,900
    
    
    
    4,167,658
    
    
    
    3,904,478
    
    
    
    3,855,889
    
    
    
    3,788,486
    
    
    
    3,692,761Noninterest income
    
    
    744,359
    
    
    
    519,452
    
    
    
    505,612
    
    
    
    477,718
    
    
    
    339,218
    
    
    
    466,650
    
    
    
    433,806
    
    
    
    401,329Noninterest expense
    
    
    3,162,634
    
    
    
    3,071,666
    
    
    
    3,197,613
    
    
    
    3,130,555
    
    
    
    2,943,137
    
    
    
    2,769,564
    
    
    
    2,589,915
    
    
    
    2,548,714Income before income taxes
    
    
    1,841,004
    
    
    
    1,673,948
    
    
    
    1,575,899
    
    
    
    1,514,821
    
    
    
    1,300,559
    
    
    
    1,552,975
    
    
    
    1,632,377
    
    
    
    1,545,376Provision for income taxes
    
    
    534,872
    
    
    
    570,895
    
    
    
    516,964
    
    
    
    541,684
    
    
    
    414,733
    
    
    
    562,908
    
    
    
    553,288
    
    
    
    521,015Net Income
    
    $
    1,306,132
    
    
    $
    1,103,053
    
    
    $
    1,058,935
    
    
    $
    973,137
    
    
    $
    885,826
    
    
    $
    990,067
    
    
    $
    1,079,089
    
    
    $
    1,024,361Earnings per common shareBasic
    
    $
    0.50
    
    
    $
    0.42
    
    
    $
    0.40
    
    
    $
    0.37
    
    
    $
    0.34
    
    
    $
    0.38
    
    
    $
    0.41
    
    
    $
    0.39Diluted
    
    $
    0.46
    
    
    $
    0.39
    
    
    $
    0.37
    
    
    $
    0.35
    
    
    $
    0.32
    
    
    $
    0.35
    
    
    $
    0.39
    
    
    $
    0.37Dividends paid
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.37
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.35
    
    
    $
    0.00
 
 1
 2
 48